As Zynga stock and outlook craters, is it time for Mark Pincus to step down as CEO?

Let me just say this right off the start: I like Zynga. I like Zynga games. Neither sentiment is fashionable in Silicon Valley, nor Wall Street. But there it is. Zynga games reach a mainstream audience that adores them, but seemingly, not enough these days.

That makes it all the more painful to ask this question: Is it time for Mark Pincus to step aside as CEO from the company he founded?

If your only barometer is the stock (and it shouldn’t be), then the verdict is bleak. One day after Zynga drastically lowered its outlook for the rest of the year, the stock is getting crushed. With two hours of trading to go, the stock is down 48 cents to $2.34, 16.87 percent. At the moment, investors are saying the company is worth about $1.77 billion. Compare that to the original $1 billion that Facebook offered to pay for revenue-free Instagram, and you get some sense of just how bleak sentiment is right now.

Actually, come to think of it, that feeling is worse. Zynga has about $2 per share in cash, plus real estate holdings. So investors actually think the rest of the company is worth 34 cents per share.

Still, there are other, intangible ways of measuring leadership. Pincus has always said, like other Web entrepreneurs of the era, that he is taking the long view. But at the moment, it’s hard to escape the fact that in the past year, from a financial and performance perspective, we’ve seen Zynga stall, and then move backwards.

This feels particularly true with the extensive string of executive departures. According to an investors’ note from Brian Pitz, analyst at Jefferies & Co.’s, the company has been experiencing a drain on talent, having lost 13 key employees since March 2012. That could cause all sorts of trouble with development, operations, and morale, leaving the company even more vulnerable to seeing its best and brightest lured away to another competitor.

The question here is why did all these people leave? Did they flee or were they pushed? Either way, it looks troubling from the outside. Is Pincus clashing with the leaders he placed around himself, including several he lured away from rival EA only to see them turn into short timers? Or are these departures an indication that insiders see the slide as irreversible? In any case, there have been too many departures to brush them off as non-events, or the natural order of business.

“The reduced performance of some of our live web games is continuing to impact results and we have several new games which are at risk of launching later than expected.”

Current games are declining, and the company can’t push the new ones out fast enough. That’s a tough cycle to break. Especially if Zynga will be looking at targeted cuts, as Pincus suggested. That’s yet another morale killer, for employees already watching top management flee as their stock options drop in value. I would expect that some time soon, Zynga will have to re-price some chunk of those options, which would cause yet another earnings hit.

One option, of course, would be going on an acquisition binge. But again, confidence in Zynga on that front has been shaken due to the catastrophic OMGPOP deal. On Thursday, Zynga said it would have to write off from $85 million to $95 million due to the poor performance of Draw Something, a game that earlier this year was the hottest thing on the planet for about a month.

This all comes back to Pincus, and his leadership. Right now, it’s looking more and more, at the moment, like Zynga was a shooting star, driven by several viral hits, rather than a stable, enduring company.

How do you change that perception? How do you re-energize employees? And how do you regain the confidence of Wall Street? This is where Pincus needs to stop and ask himself that toughest of questions: Can I turn this around? For a moment, he needs to put aside ego and pride, and carefully analyze the environment around himself.

I say he needs to do it because like many recent Internet companies that went public, Zynga structured the stock ownership to give Pincus majority control. Pincus has 50.15 percent control of the voting shares. That means, ultimately, he is the decider, and not the board. Though certainly, expect the board to have strong thoughts.

There is no easy answer. With the executive ranks thinned, it’s unclear if there would be an obvious internal replacement to be made from within. And luring someone from the outside, well, Zynga may not exactly be in a position to get the pick of the litter.

Aside from that, Pincus is part of a generation of entrepreneurs who have embraced the valley’s prevailing conventional wisdom, which says the biggest, most successful companies are driven by strong-willed founders. Pincus has been that. And for a long time, it seemed he had the right vision in terms of gaming and social media.

Of course, there is a compromise to consider here. Pincus is also chair of Zynga. He could transition into an executive chairman role, while bringing in some else to be CEO. Though it’s unclear if he would be remotely interested, it’s worth noting that Kleiner Perkins partner and EA founder Bing Gordon serves on the Zynga board, making him someone who would have deep familiarity with the company.

But that’s getting ahead of things. For now, Zynga is in serious trouble. Is Pincus the right one to turn things around? Does he have a plan or vision for snapping the downward spiral? Only he can answer. But it’s a question he can no longer avoid.